North Carolina lawmakers have sent the Prohibit Litigation Investments Act to Governor Josh Stein following overwhelming bipartisan support — passing the House of Representatives unanimously and clearing the Senate by 45 votes to one — in a move that would make North Carolina the first US state to ban third-party litigation funding outright rather than regulate it.
The legislation would prohibit any person or entity from providing funds to a claimant or defendant in return for a contingent financial interest in the outcome of a case — outlawing the core commercial model of the litigation finance industry in the state. Exceptions are limited to non-profit and legal-aid organisations, while contingency-fee arrangements for lawyers remain permitted provided they comply with the North Carolina Rules of Professional Conduct. Governor Stein retains the power to veto the measure, though the scale of legislative support across both chambers makes a veto politically difficult.
The North Carolina Chamber, which has led advocacy for the legislation, has argued that third-party litigation funding transforms civil proceedings into investment vehicles for parties with no genuine connection to the underlying dispute and raises specific concerns about the potential involvement of foreign investors in US legal proceedings.
Opponents of the ban argue that litigation funding serves an access-to-justice function — enabling claimants and defendants to pursue complex and expensive litigation that their own financial resources could not sustain — and that prohibition rather than regulation risks tilting the civil justice system further in favour of well-resourced parties capable of financing lengthy proceedings independently.
The North Carolina initiative is a significant outlier in the US regulatory environment. Federal lawmakers have proposed measures requiring disclosure of funding arrangements and limiting funder control over litigation strategy, but those proposals stop short of prohibition. No other US state has enacted an outright ban. If Governor Stein signs the Act, North Carolina becomes the first jurisdiction in the United States to test whether eliminating litigation finance entirely is constitutionally viable and practically enforceable.
For commercial litigators and dispute resolution practices the immediate implications are operational. Law firms advising clients in North Carolina proceedings — including those with funded class actions, competition claims or complex commercial disputes — will need to review existing funding arrangements against the Act’s provisions before it comes into force.
Named litigation funders including Burford Capital and Litigation Capital Management, which operate across US and UK jurisdictions, will be assessing exposure and the enforceability of existing funding agreements in North Carolina proceedings. For UK and European practices the developments signal that the US regulatory environment for litigation funding is fragmenting — and that cross-border funding structures involving US parties will require jurisdiction-specific legal advice on enforceability for the remainder of 2026 and beyond.